Contractors Watching Contractors? Where Is the True Oversight? (Part II)

In Part I, we raised the issue of the government's push to have contractors managing and overseeing contractors. We specifically looked at the Army Sustainment Command (ASC), that manages logistics civilian augmentation program (LOGCAP), the Army's largest service contract. KBR, the main LOGCAP contractor, received this contract to support the troops in Iraq, Kuwait and Afghanistan. At the same time, the Army hired SERCO, a British company, to manage and oversee KBR, thus outsourcing contracting functions that have traditionally been considered inherently governmental functions. Outsourcing these functions since 2004 has masked a serious problem of the Army's inability to provide enough acquisition personnel to handle the huge contract. But this practice presents many hazards, the worst being the Army losing control of the contracting process and control of costs to private oversight contractors. As a result of this failed contracting trend, the costs of the follow-on LOGCAP contract have been artificially inflated by approximately 90 percent.

Apparently, the trend of using oversight contractors, instead of internal DoD contract specialists, has spread within Army contracting beyond the ASC. In 2003, the Army Contracting Agency (ACA) and its subordinate agency, the Contracting Center of Excellence (CCE), which provides contracting support to more than 125 DoD customers, also relied on contractor oversight specialists who make up about 42 percent of its workforce and perform essentially the same work as their government counterparts while making more money. Most of these contractors were CACI personnel. CACI is one of the government's 50 largest contractors.

The Government Accountability Office (GAO) issued a report in 2008 following an examination of the CCE and its practice of using oversight contractors as contract specialists. It was not surprising that the GAO determined that the "line separating contractor from government employee is blurry," and there presents a high risk potential for conflicts of interest. Again, they found that costs to use oversight contractors were higher than using only government contract specialists. In fact, oversight contractor personnel were being paid 17 to 27 percent more per hour than their government counterparts. This inequity leaves little incentive for employees to stay with the Army when they can take the training from the government, but then get a job with CACI or another service provider and earn more money.

The GAO also raised major concerns about the loss of government control and accountability when contractors provide services that encroach on inherently governmental functions. They stated:

"The closer contractor services come to supporting inherently governmental functions, the greater the risk of their influencing the government's control over and accountability for decisions that may be based, in part, on contractor work. Decisions may be made that are not in the best interest of the government and may increase vulnerability to waste, fraud or abuse."

This practice appears to have proliferated beyond the DoD. The General Services Administration (GSA) hired CACI, in 2006, to process suspension and debarment cases against errant government contractors.

According to the Project on Government Oversight (POGO), in an articlethat appeared in 2007, senior government employees with knowledge of CACI's work told POGO that the outsourcing of these functions caused them concern, stating, "Turning this work over to CACI has potentially placed it in the extraordinary position of having unfair access to sensitive data from its competitors as well as providing the company the opportunity to undermine the standing of future competitors for government contracts." Scott Amey, POGO's General Counsel stated, "This is another example of the government being run by contractors. How can the government in good conscience include any private company into this important work, especially one so recently considered for debarment?" (CACI subsequently responded to POGO's article claiming that POGO misrepresented the company's work for the GSA.)

Even if one tries to contend that these functions may not be inherently governmental, this policy create opportunities of fraud and other types of contract malfeasance. In the word of the GSA Office of Inspector General, "... it may not be prudent for GSA (the Government) to utilize contractors in support of this function."

In Iraq, the State Department, along with DoD, awarded more than $500 million in contracts to oversight contractors to manage other contractors mainly because the Coalition Provisional Authority, established by the US to govern Iraq after the invasion in 2003, did not have sufficient staff to manage or oversee those contracts.

Despite recommendations from the GAO and the DoD Office of Inspector General (DoD-OIG) for the DoD to enact corrective measures to ensure there are sufficient numbers of qualified government personnel as contract specialists, very little has been accomplished to achieve that goal. As we argued in Part I of this series, this plunge by the DoD and other government agencies into this brave new world of contractors watching contractors, has grave implications to the effectiveness and success of war and procurement contracting. This ill-advised move has caused an increasing trend, which is making the unauditable DoD even more dysfunctional, fraudulent, wasteful and dangerous to our national security and troops.

We recommend the following solutions:

The DoD and the Army in particular, should implement remedies strongly recommended by the GAO, the Gansler Commission and the DoD-OIG to greatly increase government oversight and acquisition personnel who have been trained and skilled in contracting. Since the DoD has been dragging their feet at implementing change, Congress should require benchmarks and a time limit to implement these recommendations and have a willingness to withhold a percentage of funding until the reforms have been successfully implemented. Contractor personnel should be replaced as new internal government contractor specialists are trained and come into place.

The government should issue policy guidance for all federal contracting activities prohibiting the use of contractors to provide oversight of other contractors and contract specialist services. The guidance should emphasize that oversight of government contractors is an inherently governmental activity that must be performed by government officials.

There should be internal compliance audits to ensure that the policy is being followed. Government organizational leaders must have compliance as part of their scorecard, and some of their operating money should be tied to complying with this policy. Such audits are already a standard part of government work; this would just add a new category for review. Withholding a portion of the operating money for the organization will get the leaders' attention and prevent a bureaucratic slow roll on implementation.

Interestingly, in April 2009, the secretary of defense announced his intent to reduce the department's reliance on contractors and increase funding for new civilian authorizations. More recently, in August 2010, the secretary of defense announced plans to reduce funding for service support contractors by 10 percent per year from fiscal years 2011 to 2013.

By complying with the statutory requirements and looking at lessons learned from past use of contractors for oversight, it appeared the Army was in a position to insource contracting activities. In fact, as reported in The Washington Post, the Army announced last year it planned to insource about 4,150 positions currently performed by contractors. However, according to the article, the Army announced last month it "is suspending its existing efforts to move more work in-house." Even though a stated reason for the suspension was that earlier efforts did not seem to save much money, it appears, from the Post article, that significant contractor pressure may have been applied on Army officials to keep the lucrative positions outsourced to contractors.

One of the other problems for the bureaucracies is that the Bush administration told them to outsource as much as possible; then, the Obama administration told them to bring inherent government management and oversight back into the government fold and reduce contractors; and, now, the new Republican-controlled House of Representatives has announced that it plans to push for more government outsourcing to contractors. Outsource, insource and then outsource is pushing the agencies and departments around and will have to be worked out.

However, the egregious and damaging use of contractors watching contractors should be the first idea to go into the procurement trash bin of history and put contract management and oversight back into the hands of government contract specialists and have it classified permanently as an inherently government function. Since DoD was the first instigator of this bizarre flip in government procurement, they should be the first to be forced to change, starting with the companies that are overseeing the companies that are supplying our troops.

Charles M. Smith, a little-known, retired, Army civilian employee hero, went up against the Iraq contractor KBR on behalf of the troops and the taxpayers and was demoted. Smith was chief of the Field Support Contracting Division of the Army Field Support Command in Rock Island Arsenal, and one of his main jobs was to oversee the enormous Army contract with KBR during the Iraq and Afghanistan wars. He told KBR he legally would be withholding 15 percent of all payments to KBR until their auditing systems caught up to their spending. His story, as told by The New York Times, can be found here. His new book, War for Profit: Army Contracting vs. Supporting the Troops, is available here.

Contractors Watching Contractors? Where Is the True Oversight? (Part II)

In Part I, we raised the issue of the government's push to have contractors managing and overseeing contractors. We specifically looked at the Army Sustainment Command (ASC), that manages logistics civilian augmentation program (LOGCAP), the Army's largest service contract. KBR, the main LOGCAP contractor, received this contract to support the troops in Iraq, Kuwait and Afghanistan. At the same time, the Army hired SERCO, a British company, to manage and oversee KBR, thus outsourcing contracting functions that have traditionally been considered inherently governmental functions. Outsourcing these functions since 2004 has masked a serious problem of the Army's inability to provide enough acquisition personnel to handle the huge contract. But this practice presents many hazards, the worst being the Army losing control of the contracting process and control of costs to private oversight contractors. As a result of this failed contracting trend, the costs of the follow-on LOGCAP contract have been artificially inflated by approximately 90 percent.

Apparently, the trend of using oversight contractors, instead of internal DoD contract specialists, has spread within Army contracting beyond the ASC. In 2003, the Army Contracting Agency (ACA) and its subordinate agency, the Contracting Center of Excellence (CCE), which provides contracting support to more than 125 DoD customers, also relied on contractor oversight specialists who make up about 42 percent of its workforce and perform essentially the same work as their government counterparts while making more money. Most of these contractors were CACI personnel. CACI is one of the government's 50 largest contractors.

The Government Accountability Office (GAO) issued a report in 2008 following an examination of the CCE and its practice of using oversight contractors as contract specialists. It was not surprising that the GAO determined that the "line separating contractor from government employee is blurry," and there presents a high risk potential for conflicts of interest. Again, they found that costs to use oversight contractors were higher than using only government contract specialists. In fact, oversight contractor personnel were being paid 17 to 27 percent more per hour than their government counterparts. This inequity leaves little incentive for employees to stay with the Army when they can take the training from the government, but then get a job with CACI or another service provider and earn more money.

The GAO also raised major concerns about the loss of government control and accountability when contractors provide services that encroach on inherently governmental functions. They stated:

"The closer contractor services come to supporting inherently governmental functions, the greater the risk of their influencing the government's control over and accountability for decisions that may be based, in part, on contractor work. Decisions may be made that are not in the best interest of the government and may increase vulnerability to waste, fraud or abuse."

This practice appears to have proliferated beyond the DoD. The General Services Administration (GSA) hired CACI, in 2006, to process suspension and debarment cases against errant government contractors.

According to the Project on Government Oversight (POGO), in an articlethat appeared in 2007, senior government employees with knowledge of CACI's work told POGO that the outsourcing of these functions caused them concern, stating, "Turning this work over to CACI has potentially placed it in the extraordinary position of having unfair access to sensitive data from its competitors as well as providing the company the opportunity to undermine the standing of future competitors for government contracts." Scott Amey, POGO's General Counsel stated, "This is another example of the government being run by contractors. How can the government in good conscience include any private company into this important work, especially one so recently considered for debarment?" (CACI subsequently responded to POGO's article claiming that POGO misrepresented the company's work for the GSA.)

Even if one tries to contend that these functions may not be inherently governmental, this policy create opportunities of fraud and other types of contract malfeasance. In the word of the GSA Office of Inspector General, "... it may not be prudent for GSA (the Government) to utilize contractors in support of this function."

In Iraq, the State Department, along with DoD, awarded more than $500 million in contracts to oversight contractors to manage other contractors mainly because the Coalition Provisional Authority, established by the US to govern Iraq after the invasion in 2003, did not have sufficient staff to manage or oversee those contracts.

Despite recommendations from the GAO and the DoD Office of Inspector General (DoD-OIG) for the DoD to enact corrective measures to ensure there are sufficient numbers of qualified government personnel as contract specialists, very little has been accomplished to achieve that goal. As we argued in Part I of this series, this plunge by the DoD and other government agencies into this brave new world of contractors watching contractors, has grave implications to the effectiveness and success of war and procurement contracting. This ill-advised move has caused an increasing trend, which is making the unauditable DoD even more dysfunctional, fraudulent, wasteful and dangerous to our national security and troops.

We recommend the following solutions:

The DoD and the Army in particular, should implement remedies strongly recommended by the GAO, the Gansler Commission and the DoD-OIG to greatly increase government oversight and acquisition personnel who have been trained and skilled in contracting. Since the DoD has been dragging their feet at implementing change, Congress should require benchmarks and a time limit to implement these recommendations and have a willingness to withhold a percentage of funding until the reforms have been successfully implemented. Contractor personnel should be replaced as new internal government contractor specialists are trained and come into place.

The government should issue policy guidance for all federal contracting activities prohibiting the use of contractors to provide oversight of other contractors and contract specialist services. The guidance should emphasize that oversight of government contractors is an inherently governmental activity that must be performed by government officials.

There should be internal compliance audits to ensure that the policy is being followed. Government organizational leaders must have compliance as part of their scorecard, and some of their operating money should be tied to complying with this policy. Such audits are already a standard part of government work; this would just add a new category for review. Withholding a portion of the operating money for the organization will get the leaders' attention and prevent a bureaucratic slow roll on implementation.

Interestingly, in April 2009, the secretary of defense announced his intent to reduce the department's reliance on contractors and increase funding for new civilian authorizations. More recently, in August 2010, the secretary of defense announced plans to reduce funding for service support contractors by 10 percent per year from fiscal years 2011 to 2013.

By complying with the statutory requirements and looking at lessons learned from past use of contractors for oversight, it appeared the Army was in a position to insource contracting activities. In fact, as reported in The Washington Post, the Army announced last year it planned to insource about 4,150 positions currently performed by contractors. However, according to the article, the Army announced last month it "is suspending its existing efforts to move more work in-house." Even though a stated reason for the suspension was that earlier efforts did not seem to save much money, it appears, from the Post article, that significant contractor pressure may have been applied on Army officials to keep the lucrative positions outsourced to contractors.

One of the other problems for the bureaucracies is that the Bush administration told them to outsource as much as possible; then, the Obama administration told them to bring inherent government management and oversight back into the government fold and reduce contractors; and, now, the new Republican-controlled House of Representatives has announced that it plans to push for more government outsourcing to contractors. Outsource, insource and then outsource is pushing the agencies and departments around and will have to be worked out.

However, the egregious and damaging use of contractors watching contractors should be the first idea to go into the procurement trash bin of history and put contract management and oversight back into the hands of government contract specialists and have it classified permanently as an inherently government function. Since DoD was the first instigator of this bizarre flip in government procurement, they should be the first to be forced to change, starting with the companies that are overseeing the companies that are supplying our troops.

Charles M. Smith, a little-known, retired, Army civilian employee hero, went up against the Iraq contractor KBR on behalf of the troops and the taxpayers and was demoted. Smith was chief of the Field Support Contracting Division of the Army Field Support Command in Rock Island Arsenal, and one of his main jobs was to oversee the enormous Army contract with KBR during the Iraq and Afghanistan wars. He told KBR he legally would be withholding 15 percent of all payments to KBR until their auditing systems caught up to their spending. His story, as told by The New York Times, can be found here. His new book, War for Profit: Army Contracting vs. Supporting the Troops, is available here.